Franchising in Taiwan: Setting Up Payment Collection, Revenue Sharing and Reconciliation

If you are preparing to franchise an existing business in Taiwan and plan for head office to collect online order payments centrally, or collect sales proceeds before distributing a share to franchisees, simply stating a percentage split in the contract is not enough. When funds are credited, which costs may be deducted and how discrepancies are resolved will all directly affect each outlet’s cash flow. Building a franchise network based on trust starts with making every payment collected on someone else’s behalf traceable.

1. Distinguish funds collected on behalf of others from head office revenue

Franchise arrangements can involve different relationships, including licensing, operational guidance and delegated management. Even where head office collects payments in each case, revenue entitlement, responsibility for costs and sharing methods may differ. Labels such as ‘management franchise’ or ‘business-format franchise’ cannot, on their own, determine how settlement should work.

Before offering franchises, map the flow of funds across channels such as cash, credit cards, delivery platforms and online orders. For each channel, establish:

• Who supplies the goods or services to the customer, and who is responsible for issuing invoices?
• Who contracts with the payment service provider, and whose account receives the funds first?
• Is the recipient collecting funds on another party’s behalf, receiving its own revenue, or receiving funds from which it subsequently pays a share to another party?
• Who initially handles delayed platform payments, chargebacks or shortfalls?

The answers should be supported by the contracts, platform arrangements and actual transactions. Ask an accountant in Taiwan to check the tax treatment. Do not assume that ‘the money goes into head office’s account first’ means ‘it is all head office revenue’.

2. Turn the agreed split into a formula that can be independently checked

Sharing revenue is not the same as sharing gross profit. Head office should define the calculation basis before discussing percentages, so that both parties do not use the same terminology yet arrive at different figures.

For revenue sharing, specify whether amounts include tax, how discounts are reflected, in which period refunds are adjusted and whether platform service fees are deducted separately. For gross profit sharing, list the deductible costs of goods, delivery charges, losses or other items. A clause stating only that funds will be ‘distributed after deducting relevant costs’ is not enough.

Prepare a sample settlement statement showing, in order, the total transaction value, agreed adjustments, the basis for calculating each party’s share, the amount allocated to each party, any other authorised deductions and the final amount payable. Each deduction should identify its basis and the source of supporting evidence, allowing franchisees to reproduce the calculation themselves.

For example, an order placed at the end of one month may not be paid out by the platform until the following month. The period to which the sale is attributed, the settlement period and the payment period may therefore differ. The contract should establish consistent rules, avoiding a situation where head office calculates its own fees from the transaction date while indefinitely delaying the franchisee’s payment.

Take particular care to prevent double deductions: if platform fees have already been deducted when calculating the amount to be shared, they should not be deducted again at payment. Nor should a new fee that has not been agreed automatically become the franchisee’s responsibility simply because a field has been added to the settlement system.

3. Set settlement dates, access rights and procedures for resolving discrepancies

At a minimum, the settlement process should distinguish between the cut-off date, the statement issue date and the payment date. It should also explain how public holidays, delayed platform receipts and refunds relating to earlier periods will be handled. These are recommended management arrangements, not a payment timetable uniformly prescribed by Taiwanese law.

Each statement should include enough information for verification: transaction references, outlets, channels, transaction dates, reasons for adjustments and records of actual payments. Providing only a ‘net amount for this period’ leaves franchisees unable to tell whether a discrepancy arises from refunds, platform fees or head office deductions.

Establish a written dispute procedure as well. It should state whom franchisees should contact, what information they must provide, how head office will respond and in which period a confirmed error will be corrected or an underpayment made good. Undisputed amounts should preferably be paid on schedule, rather than withholding an entire period’s payment because of a query over one order.

Head office should also provide reasonable access to detailed records, masking customers’ personal data where necessary. Backup statements and a manual reconciliation process should be available if systems fail, so that payments do not depend entirely on a single platform coming back online.

4. Include settlement arrangements in pre-contract disclosures

Taiwan does not have a single comprehensive franchise statute, but that does not mean franchising is unregulated. The Fair Trade Act and the Fair Trade Commission’s Guidelines on the Business Practices of Franchisors are important reference points. Contract performance, payments and damages also fall within the scope of the Civil Code. The Guidelines are administrative rules used by the Fair Trade Commission when handling cases, not a separate franchise statute.

The Guidelines require head office to provide important information before entering into a franchise relationship, including ongoing operating fees and business restrictions. Arrangements such as payment collection service fees, deductions used in calculating revenue or profit shares, and compulsory use of designated payment channels should be clearly disclosed according to their nature. They should not first appear on a settlement statement after the outlet has opened.

As a general rule, important information should be provided ten days before entering into the franchise relationship, or within a reasonable period agreed by both parties. Separately, prospective franchisees must be allowed at least five days to review the contract, and a copy of the contract must be provided within thirty days of signing. The disclosure period and the contract review period are distinct requirements and should not be conflated. Concealing important transaction information may fall within Article 25 of the Fair Trade Act if it constitutes deceptive or obviously unfair conduct capable of affecting trading order.

In practice, disclosures, contract schedules, system formulas and settlement statements should all be consistent. Franchise recruitment staff should not substitute ‘head office handles everything, so it is simple’ for a proper explanation of deductions and payment timings.

Practical takeaway: Before recruiting franchisees, test the calculations using a complete set of transaction records from an existing outlet, including payments and refunds spanning different periods. Ask someone who was not involved in designing the process to reproduce the calculation using only the contract and statements. If they still cannot work out the amount payable, fix the system before asking franchisees to use it.